Bailout Bonus Tax
With the public in a rage over recent bailouts, and the $165 million given as bonuses to AIG (American International Group) employees, the House did pass a bill in a 328 to 93 vote for an IRS bonus tax legislation.
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The House legislation calls for a 90% surtax to be imposed on any bonus paid after Dec. 31, 2008, by a company that received $5 billion or more in taxpayer dollars from the Troubled Asset Relief Program. The tax would need to be paid by any employee or former employee whose family income exceeds $250,000 ($125,000 for married recipients filing separately).
For the individuals affected, they would calculate their federal tax bill without the bonus and then add to that amount 90% of the total bonus received. They would also need to add another 1.45% for the Medicare tax owed on the bonus. They would also need to pay regular state and local tax, some may owe more than they received. Some argue that if Congress wants to limit bonuses for employees of bailed-out companies, it should just do it without using the Internal Revenue Code.
Some are claiming that the bonus tax measure is unconstitutional taxing because it is taxing the same kind of income at a different tax rate. This tax rate would apply to bonuses already paid out as well as future ones. It would be limited to companies that took at least $5 billion in government aid.
What will happen to the House bill is unsure. The Senate Finance Committee on Thursday introduced a version of a bonus tax, which would impose a 35% tax both on the company giving the bonus and on the individual receiving it. Under this bill, individuals would calculate their normal federal income tax bill, including the bonus, and then add 35% of the value of the bonus.
Even with all the talk about bailouts and tax bonus, local banks are told to keep lending as they are a source of credit when larger banks have withdrawn credit. It is viewed as a way for local banks to have new business and be important to the economy.
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